Dedicated to the prospect of setting up a full reserve bank in the USA, as well as analysis of the current economic environment.

Friday, May 29, 2009

Abolish the Fed

In libertarian and Austrian (economics, that is) circles, one of the rallying cries in the fight against fiat money (and by extension fractional reserve banking) has been "Abolish the Fed!". Surely this is a worthwhile goal, even in the political realm. At least one member of Congress holds and propagates this view.

However, in today's day and age, is this goal possible? Is it possible without removing a significant portion of Congress from their positions? Even if we had 435 brand new Congressmen and 100 brand new Senators, how long before the banking elites would apply their lobbying dollars and corrupt those politicians, as they've been doing for nearly 100 years.

So, the question that has been knocking about in my brain for a couple of months now is this: If voting with our ballots cannot achieve this goal, what about voting with our wallets? This has been one of the great mantras of the free market - change, meaningful change can be affected by the individual decisions that people make as they serve their own interests and the interests of others. Can we, the people, abolish the Fed, simply by making decisions and taking actions in their own lives? Here's where it gets tricky. The Fed, because of it's evil and ingenious relationship to our government and the banking system does not directly serve the consumer. It lends money to banks, sets interest rates, prints money, buys Treasury notes, but, as a consumer, I can't walk up to my local Federal Reserve Bank and do anything.

But, there are some activities we, the people, can engage in that would significantly weaken the existence of the Federal Reserve. These actions would also significantly weaken the credit position of the U.S. government, but sadly, I believe that step is necessary before any progress can be made in abolishing the Fed.

Here are the steps we can take. They're not ludicrous (unless you subscribe to conventional wisdom). It is only required that a significant enough portion of the population adopt them.

Stop buying Treasuries! One of the most sickening oft-repeated "truths" of investing is that Treasuries are the safest investment opportunity available, since they are backed by the "full faith and credit of the US government." While that is true in a sense, the statement only makes sense in a world where the medium of exchange is worth something. The dollar, intrinsically, is not. It's paper, backed by nothing. So, what does not buying dollars have to do with anything? If we, the people stop buying them, the only remaining purchasers would be 1) foreign entities and 2) the Fed. If Americans start pulling out of Treasuries, the foreign governments and investors will not want to stick around. There are already signs that this is happening. If the Fed is the only significant purchaser of Treasuries, it will be forced to print itself right out of relevance.

Stop buying bond and money funds that hold Treasuries.

Get out of dollars. Do you get paid in dollars? (I do) Turn them into something worthwhile, something that holds value. Gold and silver have been money for thousands of years. Dollars (non-backed), less than 40. Sure, the price doesn't always seem to behave like one would expect, but, if the dollar collapses, I'd rather own 10 oz. of gold than $10,000 in an FDIC-insured savings account paying 25% per year!

Use other money. This is the ultimate vote of no-confidence in the dollar, and by extension, the Fed. While legal tender laws will make this difficult, there is no law saying you cannot denominate the terms of a contract in something other than dollars. Do you own a business? Start advertising that you accept gold or silver coins! Do you own a bank? Create gold-backed accounts! Are you making a big purchase? Offer the vendor a handful of American Eagles!

While these steps would be difficult (especially 3 & 4), they are concrete, they are simple to understand, and they would, without fail, destroy the Fed. Perhaps they would not abolish the Fed, but they would make it irrelevant by causing it's sole export to become laughably useless.

Getting out of dollars is impractical because everything is, well, priced in dollars. I think the best thing to do would be to simply pull your money from the banks, especially those that have been bailed out by the Fed. Either pull your money out or if you can't, take them out of CDs or savings accounts.

Keep the money you need in a checking account and buy precious metals with the extra money you would have had in your savings account.

This would be great. To me it seems common sense that there are ought exist a bank account with no risk of getting loaned out and lost. If I want to invest, then I can go to a brokerage house. It looks like there is a huge conflict of interest with banks keeping savings, and making loans for profit. This to me is just like Arthur Andersen and Andersen Consulting--which went bust because of the conflict of interest in doing the books right and making the client a profit.

Demand for my own businesses services is growing. The company needed to expand last year in order to keep up with the demand. We tried raising prices to reduce demand to within our delivery capacity, but that didnt work, demand did not drop in response to the price increase.

Our only option to remain responsive to our customers needs was to buy a new $86,000.00 piece of equipment.

We took out a loan for $50,000.00, purchased the equipment, and put two new employees to work.﻿

Those two new employees, were needed to operate the new equipment, which was needed to meet our customers demand for services. The equipment purchase would not have been possible without a bank loan. End fractional reserve banking, and our economy will dive into depression as bank loans﻿ go the way of the dinosaur.

I am interested in hearing how a Full-Reserve, or Non-Reserve banking system is proposed to work. I have searched the internet, and can find no workable solutions put forth as an alternative.

Bank loans﻿ have allowed me to purchase a home.

Bank loans allowed me to start a business, and employ four employees with an annual payroll expense of over $110.000

I am worth over 1/2 Million, and owe over $60,000 in non-mortgage debt.

My income, and my employees income has been made possible by my debt.

So you would reduce the money supply, making dollars more and more rare. Deflation would result, causing prices to drop across the nation. Wages would necessarily drop with the declining price pressure. My fixed rate mortgage payment would not drop, and it would get harder and harder to pay the note. Your proposal to reduce the﻿ money supply would cause a huge mortgage crisis wouldn't it?